Entrepreneurs, don’t kid yourselves – Sanjay Swami, Angel Prime

Sanjay Swami, Managing Partner at Angel Prime hosted a Google hangout today to discuss on funding.  I joined the conversation to learn from the wisdom of this entrepreneur-turned-investor, and pass on to all of you.

Here are the key highlights of the hangout –

> It is important to understand the mindset of investors. All VC funds are comprised of money raised from Investors. They invest some of their money and some of their investor’s money. So, ROI is the most important metric. VCs tend to be interested where the risk is comparatively lower.

> Broadly there are two kinds of companies – companies that have the potential to become $100 bn ones, and life style startups ( for a lack of better word) whose limit is $5 – $10 mn, and they reach a plateau thereafter.  Personally, VCs favorite the first kind of startups.

> You can pitch anytime to an Investor during the life cycle, but during the ideation phase the attractiveness is quite low. So, the entrepreneur might have to let go of more equity to raise funds.

> From an entrepreneur’s standpoint, it is important to analyze various sources and use them at the right time. Some sources could be personal funds, Friends & Family and Institutional Investors.

What Investors look in a startup while funding ?

> How Great is the team? This is one of the first things an Investor looks at.  Also, is atleast one person in the the team has first hand experience of the problem?  Another thing Investors look at is, if the team has strong differentiated domain knowledge. So, even if things go wrong the first time ( they always will), the team can get the act right and pull it off.

> How big is the Opportunity?  The bigger the market, the better. Sanjay tells Entrepreneurs not to kid themselves at this point,  and convince yourself that it’s a bad market. If the opportunity is big enough, it will show evidences.

> How can we help the Entrepreneur?  Gone are the days when Investors wrote a check and disappeared. Now, Investors want to get involved, and want to check if the synergy actually helps the startup.

What should an entrepreneur NOT do when trying to raise funds?

> Start PITCHING too early. Pitching is the warning word here.  Investors often are willing to have a coffee chat, and brainstorm on your idea. However, pitching too much is always a risk, as people will have pre-conceived notions by hearing about your startup or idea elsewhere.

> Don’t be desperate to raise funds. You get the worst of terms in such situations, and it is equally bad for Investor and Entrepreneur.

The participants asked lot of questions, will mention two of them for your reading.

Qn : How do you get introduced to Investors without any connections?

Swamy : This is a small and connected world.  90% of the times, it is showing up at right places at right times.  There are lot of groups that conduct entrepreneur events. Attend them, and network well. Relationships have to be formed, and nothing happens overnight.

Qn. Why do so many startup shut down due to lack of funding ?

Swamy : Good companies do not die of starvation, they die of indigestion. Jokes apart,  I don’t believe startups die due to lack of funding.  Companies die because you don’t have a great product or the market is not ready to pay for it. When Investors pass on the startup, it is really important to sit and discuss why the investment did not happen.  When the entrepreneur repeatedly hears NO, it is time to sit and seriously think about their product and strategy.

Hope you all enjoyed these great insights from Sanjay Swami. Please share, so everyone can benefit from these basic and useful suggestions.